Thursday, June 4, 2020

“Conquering the Unbanked in Latin America” – Luis Barragan Scavino

“Conquering the Unbanked in Latin America” – Luis Barragan Scavino

Latin America is a very diverse region, where different countries share many things in common, such as the Spanish language and something very attractive to the fintech market: More than 40% of the region’s unbanked population. Many Latin Americans don’t have  access to the traditional banking system, mostly due to the following reasons:

  1. Traditional banks charge very high-interest rates, reaching in some cases more than 100% annually.
  2. Traditional bank’s credit scoring algorithms are very strict.
  3. The banking market is heavily regulated in countries to combat money laundering and drug dealing.
  4. A huge informal economy where people live from personal businesses that do not register in company accounts.

A serious traditional mistake of multinationals is to apply the same marketing strategy to all Latin American countries, when in reality there are many cultural differences in each country, and even within each country there are multiple dissimilar cultures, which results in reaching the target customer even more complex.

This diversity of cultures is mainly due to mixtures of different ethnic origins and different regions within a country, as well as the difference in climates that exist in Latin countries that have mostly three clearly differentiated areas, such as dessert coasts, Andean regions, and Amazon rainforest.

One of the most important common characteristics in the region is entrepreneurship, which is due to the fact that the traditional financial system is so expensive and demanding that it forces the Latino entrepreneur to look for alternative ways to find the economic resources they need to support their families.

Fintech companies that have emerged in Latin America, come to offer innovative digital financial services, as well as most traditional banks, are developing projects to digitize their financial services, which is generating the reduction of the number of banking agencies in main cities of the region.

This is how the fintech ecosystem in Latin America is in exponential growth and is receiving strong venture capital investments, as they have occurred mainly in Brazil and Argentina from Softbank and Tencent for example, which are the fastest-growing markets in the fintech ecosystem, where you can find 2 Latin fintechs in the top ten neobanks global valuación ranking, which are Nubank from Brazil and Uala from Argentina.

In the top 100 fintech cities global ranking prepared by www.findexable.com, eight Latin cities appear in the following positions:

  • Sao Paulo in 5th place
  • Mexico City in position 21
  • Bogota in position 40
  • Buenos Aires in position 42
  • Santiago de Chile in position 54
  • Rio de Janeiro in position 57
  • Porto Alegre in position 91
  • Curitiba in position 97

As well as in the ranking of the top 10 cities considered fintech ecosystems gateways, 30% are Latin cities like Sao Paulo (5), Mexico City (7) and Bogotá (10). Peru is also included in the ranking of the top 10 fastest growing countries of the fintech ecosystems in the world.

According to the article written by Greg Mitchel’s on @techcrunch, in 2019 a new record was set for the amount of capital invested in Peruvian startups, at least $ 11 million, an increase of 24% compared to 2018. Most of the money was used for fintech startups (47%) and edtech (37%). In the past four years, more than $ 22.7 million in public funds has also been spent on projects related to startups.

I recommend that you keep an eye on the Latin American fintech market because there are thousands of innovative entrepreneurs creating fintechs for all kinds of solutions such as @bankmoda in Colombia, which is a neobank focused on fashion companies, @Pebble in Brazil that is revolutionizing the POS (point of sales) device market and @B89 a neobank in Peru offering cross-border bank accounts.

Thank you Luis Barragan Scavino!

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